Scoring the Economics of the Olympics

When asked whether the Olympics always have a positive impact on the host city, Wharton’s David W. Hauck Professor Kenneth Shropshire says that the presence of a measurable, positive impact is debatable. For an example, the faculty director of the Wharton Sports Business Initiative cites the Barcelona Games of 1992. A significant amount of construction occurred in advance of the Olympics on the city’s waterfront. Barcelona became a major success and the model regarding economic impact, yet while in progress, there were no guarantees.

Mauro Guillen, the Dr. Felix Zandman Professor of International Management and director of the Lauder Institute, says that hosting the Olympics rarely pays off for a city. For nearly three years, Guillen has been studying the impact on the host city’s long-term bottom line.

One of the major determinants of the ultimate benefits is the amount of necessary new infrastructure. In many instances, host cities invest millions of dollars in a new stadium, but after the Games, the site becomes forgotten and seldom used. Guillen points to Montreal to illustrate how bad it can get. It is still paying debts from its Olympics in 1976.

For cities that don’t need much preparatory work, however, the Games can have great economic benefits. Guillen cites London as a prime example.

“Most of the improvements for the London Games were not for infrastructure, since they already had most of what they needed. Instead, they were for things like safety and security,” he says.

Over the past few years, Guillen and fellow faculty member Felipe Monteiro, an assistant professor in the Management Department, have spent a week in Rio de Janeiro teaching the Global Modular Course “Managing in Emerging Economies: Energy & Infrastructure in Brazil.”

As Rio prepares to host the games in 2016, students have witnessed firsthand the financial impact on a city.

“We’re not looking at the sports being played, but instead we are looking at aspects of Rio such as energy and infrastructure,” says Monteiro. “Those are the issues that will play a major role in the Olympics.” During the course, students have the chance to meet with the major players for the impending games, from the Rio Olympic Organizing Committee to a national development bank. In addition to the Olympics, Rio is preparing to host World Cup 2014, so the preparations may be history-making.

“With Rio, you really see how important it is to be united. When it comes to preparing for the Games, municipalities and businesses must be working together in order for things to come together,” Monteiro says.

Will all the effort and expense pay off? Sometimes the importance of hosting the Olympics goes beyond dollars and cents, says Shropshire.

“With the Los Angeles Games, it was a statement,” he explains. “It showed that this wasn’t just Hollywood. The Olympics showed that this city was a hub in the Pacific.”